Sunday, August 21, 2016

The legacy of the the Ventotene Manifesto

Tomorrow, the Italian PM Renzi will meet French president Hollande and German Chancellor Merkel in Ventotene to discuss  the path of future European integration. The location is highly symbolic: Ventotene is where Altiero Spinelli, a founder of the federalist movement elaborated (along with Ernesto Rossi and Eugenio Colorni) a manifesto for the United States of Europe (called the Ventotene manifesto) while imprisoned during the second world war.

In his historical speech at the university of Zurich in 1946, Winston Churchill advocated for the United States of Europe. He pronounced words which may seem today those of a convinced European federalist like Altiero Spinelli who wrote a few years before   his manifesto of Ventotene. He said: The structure of the United States of Europe, if well and truly built, will be such as to make the material strength of a single state less important. Small nations will count as much as large ones and gain their honour by their contribution to the common cause. (...) If we are to form the United States of Europe or whatever name or form it may take, we must begin now.

The seed was sown and was actually picked up by three personalities that even for this became part of European history: Schuman, Adenauer, De Gasperi, from France, Germany and Italy, who adhered to the Ventotene Manifesto and founded as a first concrete step the coal and steel Community, which was followed soon after by a common  authority in Rome and the signing in 1957 of the European Treaties. Starting with a European Parliament with relevant institutions that culminated in a real confederation of states: Italy, Germany, France, Benelux (Netherlands, Belgium, Luxembourg). Then Spain, Portugal, Austria and so on. The result is known in both the positive phase as   in the negative, until the acceding States became 28 and among them 19 joined the single currency called the euro, created and put into circulation between 1999 and 2002

Today Europe is very different from what the manifesto called for more than 70 years ago. It is confronted to unprecedented problems : waves of migrants from South Africa  and the South East Europe; secular economic stagnation ; emergence of populist movements and xenophobic parties, populist, against the common currency; Great Britain withdrew from the Union; wide spread Islamic terrorism led by Isis  leverages social peripheries of the whole world and finally on the visible decline of the European sentiment that is spreading across the continent and casts doubt even the current supra-national institutions thereby making distant and doubtful the transition to the Federation which was at the heart of Spinelli's Manifesto.

Tomorrow Italy, France and Germany will meet precisely in Ventotene to curb this situation nothing short of desperate. What will come out of this meeting between the three powers which now represent a kind of triumvirate born to indicate (certainly not to impose) the future of European path without the United Kingdom?

It is expected that the informal talks will serve as a springboard for action when leaders of the 27 meet in Bratislava in September. If it delivers a 'credible response' , the summit could lead to a new 'political pact' (as Gozi, the EU secretary for Eu affairs called it in an interview to the FT on 18 August) to be launched on the 60th anniversary of the Treaty of Rome, which founded the European Community in 1957.  As Philippe Aigrain put it, the call for further EU integration that Italy  supports with more pooling of sovereignty , especially on issues of economic policy, migration and security may be opposed by France and Germany. Italy's narrower objectives for further integration include boosting the Juncker plan, with more funds for infrastructure and support to businesses. It also  envisages more funds for youth unemployment, cultural exchanges as well as for the integration of migrants and deportation of those not eligible for asylum with readmission agreements with countries of origin.

While the federalist project is still regarded as old fashioned, Europe inarguably needs change to respond to its many crises. Either Europe finds the strength and determination to respond to the threats that are endangering its existence or it will vanish. None of the urgent problems can wait: we need  to govern the migration flows and combat terrorism with the unification of intelligence services, legal provisions and the creation of common defense systems.  How long can Europe last with unsustainable inequalities within and between countries.

Guy Verhofstadt's book (Le Mal Européen) precisely addresses these issues and makes concrete proposals in a federalist perspective. More than ever, what was regarded as a utopian project becomes the only realistic solution for the salvation of our continent.

Sunday, June 5, 2016

Rethinking IMF's role

Keynes concluded his General Theory with the famous sentence: "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist". Economic ideas  are  often undervalued but they influence the life of  people  . This helps to understand the last three decades and maybe future ones.

The most important economic institution, the International Monetary Fund (IMF) is now struggling with itself and its intellectual legacy to design strategies for the global economy. Indeed, there is a 'fil rouge' linking the economic policies experimented in the 80sby Thatcher and Reagan, the resurgence of the right ideology and  the so-called 'Washington consensus'. The IMF was instrumental in imposing a package of  structural measures during the 1998 Asian crisis: liberalization, privatization, austerity, balanced budgets, export based competitiveness,  wage cuts, unregulated capital flows . This agenda is also applied, with some variations, in Europe, after the financial crisis, particularly in Greece, Portugal and Spain.

In recent years, the IMF has attempted to review its doctrinal positions, starting with the 'mea culpa' on fiscal multipliers in Greece - which led to unnecessarily harsh austerity measures and its softening stance on debt relief   in the Greek crisis management. 

The IMF has issued an article signed by three senior economists in one of its main journals " Finance and Development" with an appealing title ' Neoliberalism : Oversold" . Although the authors exclude to undertake a comprehensive review of the Washington Consensus, they question two main pillars of neo-liberalism.  

The first one is free movement of capital. Even without market confidence, direct investment is going fine while financial and speculative investments can be harmful, and should be strictly controlled.

Secondly, austerity has not reaped any benefit in terms of growth and have actually increased inequality and social costs which have jeopardized sustainable growth. Maybe austerity would be inevitable for countries with high debt levels but it cannot be the remedy for all. Trying to secure the benevolence of markets in reducing debt and deficits has higher costs relative to benefits. In general, it reduces gross output and increases unemployment on average of  0,6 percentage point. Spending is thus a better solution for those who can.

Germany has probably reacted strongly to this paper forcing the authors to take a more prudent view. But this is what the Greek experience has taught to any reasonable economist. For once, the IMF has behaved with common sense acknowledging its own responsibility in the management of the Greek crisis. But now it calls for responsibility on behalf of the creditors (EU and governments) to agree on cutting the Greek debt as a compensation for the cost of their errors.

Yet, the IMF should demonstrate the same coherence for its own credits vis a vis the Greek government. This would be the best way to reconcile with itself after all these mistakes on austerity policy.